Clarifying Umbrella Policies

The Towson attorney J. Neil Lanzi explains umbrella insurance polices and why they can be helpful.

What exactly is an umbrella policy?

An umbrella policy is an additional layer of insurance that is used after your normal automobile and home insurance runs out.

It is most commonly used to cover medical, court, or other miscellaneous expenses that may be required. However, few people know that umbrella polices not only protect against the usual car and home insurance claims, but can also protect against slander or defamation of character, and decisions you might have made as a volunteer in a non-profit board. The coverage you receive depends on what kind of policy you purchase.

How much does it cost?

Surprisingly, umbrella policies can be quite affordable for the peace of mind they provide. They are inexpensive because they are activated, only after your existing liability under your auto and home policies is exhausted.

Typically policies are $1 to $2 million above your existing auto and home insurance liability coverage. Coverage usually starts at $1 million and can reach up to $10 million. For a $1 million dollar policy, the average annual cost is around $200.

Why should I get an umbrella policy?

It is easy to assume only wealthy people would need an umbrella policy, but many middle class people will be surprised to know how useful the additional coverage can be. Umbrella policies protect you beyond the usual expenses of an accident and give you that sense of additional security.

If you ever find yourself in the midst of a lawsuit the liability coverage from your homeowners and auto policy may not be enough. Unfortunately, if you injure someone in an accident, you may be sued for more than what you actually have in the bank. If a judge grants wage garnishing as part of a settlement, your retirement funds, investments, savings, and even future earnings are all at risk.

When it is useful?

Lawsuits can seriously impact your income. Consider the following scenarios, which although rare, can and have happened to everyday people. In these instances, an umbrella policy would have come in handy.

A $1.2 million settlement in New Jersey where an underinsured driver hit a policeman who was completing paperwork at a traffic stop. The driver had to pay legal fees for his defense as well as the settlement.

$1.76 million was awarded to a mother and her 8-year-old child in Florida after a wave runner accident injured both of them. The mother needed corrective surgery after the initial injuries were treated.